Staff members of the Federal Deposit Insurance Corp. are recommending that thrifts be allowed to charter state banks and move deposits into the Bank Insurance Fund, according to well-placed sources.
The controversial plan, which would strip deposits from an already beleaguered Savings Association Insurance Fund, was discussed by the FDIC board on Tuesday, the sources said. No action was taken.
Thrifts want to shift deposits to the bank fund to avoid the higher premiums charged by the savings association fund. Banks oppose the transfers, fearing dilution of their fund.
Several sources said the FDIC postponed a vote Tuesday because Comptroller of the Currency Eugene Ludwig balked. As comptroller, Mr. Ludwig holds a seat on the FDIC's five-member board.
Mr. Ludwig is grappling with many of the same legal and public policy issues facing the FDIC. A number of thrifts have applications pending at the Comptroller's Office for national bank charters.
Deposit migration has become a hot topic now that legislation shoring up the Savings Association Insurance Fund appears to be stalled for the year.
Without a legislative fix, thrifts are pushing the FDIC, the Comptroller's Office, and the Federal Reserve Board for bank charters.
Though various approaches are being pursued, the general idea is for thrift companies to offer higher rates on bank deposits, thus enticing their own customers to shift funds. This would cut the thrift companies' deposit insurance bill, because the bank fund stopped charging premiums on Jan. 1. The savings association fund still levies a 23-cent fee on every $100 of domestic deposits.
The staff recommendation, if adopted by the FDIC board, would counter the agency's April decision to stop Wyomissing, Pa.-based Sovereign Bancorp from transferring deposits to a bank affiliate. The FDIC cited the terms of its order approving Sovereign's acquisition, which barred the $8 billion- asset thrift from siphoning thrift deposits to its bank.
FDIC officials refused to comment Tuesday, but industry representatives weighed in on the potential ramifications of regulators allowing thrifts to drain deposits from the SAIF.
Karen Thomas, director of regulatory affairs for the Independent Bankers Association of America, said she is concerned that a merger of the two insurance funds would result.
"We are concerned, definitely, about deposit migration out of the SAIF," she said. "We are very concerned that it is going to lead to a de facto merger of the funds."
Under the legislation being considered on Capitol Hill, the thrift industry would pay a one-time fee to build the savings association fund's reserves up to required levels. This fee would raise between $5 billion and $6 billion.
"We may find a situation where the thrifts don't put up the $5 billion and the BIF ends up recapitalizing SAIF," Ms. Thomas said.
That is exactly the scenario FDIC Chairman Ricki Helfer has been warning against in speeches to banking groups around the country.
But the American Bankers Association is not buying the argument. The association has opposed the rescue bill because it would spread responsibility for repaying the Financing Corp. bonds to banks.
"We have not seen any reasonable deposit flow scenario under which we are better off financially accepting the Fico obligation," said Edward Yingling, ABA's executive director of government relations.
When the FDIC acts, it could increase support for the legislation because it is the threat of default on Fico bonds that is expected to ultimately drive lawmakers to enact the SAIF rescue. By allowing thrifts to shift deposits, FDIC would be hastening the day of default.
As deposits leave the thrift fund, premium income falls and less money is available for Fico interest. Since the SAIF was created in 1989, thrift deposits have shrunk 47%, to $451 billion. To meet the Fico obligation, SAIF must have $333 billion, so the deposit cushion is down to $118 billion. Even Mr. Yingling estimates $100 billion in thrift deposits could be shifted.
